We believe that there will be some excellent investment opportunities in the agriculture sector over the next two years. We are projecting higher fertilizer prices for the next two years given the new crop production forecast released by the USDA (US Department of Agriculture) last Friday.
The UDSA report predicts that global farmers will produce the largest grain, corn and soybean crop in history. The combined production of corn, wheat, and soybeans will jump by 9.6% to 1.952 billion metric tonnes this year. This is the largest increase in the combined production since 2004. Global wheat production will be up 7%, corn will increase by 13% and soybeans will advance by 6% according to the USDA.
Despite the late start to planting caused by cold and wet weather, US corn production is expected to reach a record high of 14.14 billion bushels and soybean production will reach a record 3.390 billion bushels in 2013.
Given the significant change in the USDA forecast for world grain, corn, and soybean production this year we are now forecasting rising fertilizer prices over the next two years, resulting from an increased demand for fertilizers from growth in global plant production that should more than offset any new fertilizer production entering the marketplace this year and next year. Therefore we are projecting potash prices to average US$480/t in 2013 and US$520/t in 2014 following the average of US$450/t posted in 2012.
CHF client Nuinsco Resources Limited (TSX: NWI) has a phosphate property.
Other companies in the sector that we like include Encanto Potash Corp., Karnalyte Resources Inc., and MBAC Fertilizer Corp.
Copper prices are trading at US$3.31/lb today on the NYMEX. On Friday copper prices jumped 6.8%, the largest one-day increase in the price of copper since October 2011. The price increase on Friday was the result of much stronger-than-expected job growth in the USA in April and upward revisions to employment levels in the three previous months. This suggests that the US labour market is quite strong despite ongoing problems in Europe. In addition, China has seen strong demand for copper in recent weeks and physical premiums have risen to their highest levels in the past year.
Our outlook for the copper market over the next three years is significantly different from the two US banks who have recently published reports indicating that refined metal production will exceed demand until 2016. We expect copper demand to continue its good growth given the infrastructure programs that will occur over the next three years in China, India, Indonesia, and Brazil. Additionally, over the next three years we do not expect Europe to enter into a major recession, the USA will have decent economic growth, and Asia, Brazil and Turkey will continue to have excellent economic performances.
We do not agree with the two banks and other analysts that have a forecast that contains a significant growth rate in copper supply in the next three years. One major copper project in Peru has been delayed and another major project in the Philippines has been postponed with the result that production from these two projects will not reach market in the next three years. As a result we are projecting copper prices to increase to US$4/lb by the 2nd quarter of next year.
Our CHF clients with copper assets include: Alpha Gold Corporation (TSXV: ALQ), Caledonia Mining Corporation (TSX: CAL), Mindoro Resources Ltd. (TSXV: MIO), Monument Mining Limited (TSXV: MMY), Murgor Resources Inc. (TSXV: MGR), Nuinsco Resources Limited (TSX: NWI), Pure Nickel Inc. (TSX: NIC), St. Augustine Gold & Copper Ltd. (TSX: SAU), Virgin Metals Inc. (TSXV: VGM) and Wildcat Exploration Ltd. (TSXV: WEL).
Companies that we like in this sector include Augusta Resource Corporation, Curis Resources Ltd., Mercator Minerals Ltd., and Tintina Resources Inc.